Question

"Managing Corporate Earnings" Please respond to the following:

• Evaluate the environmental factors that contribute to corporate management’s need to manage corporate earnings to align with market expectations, indicating the potential long- term risks to financial performance and sustainability.
• Assess the ethical complexities related to managing corporate earnings, determining whether or not investors and stakeholders are accepting of this behavior. Assuming that you are in a position to make corporate financial decisions, how likely are you to engage in earnings management and why?
• Please provide one citation/reference for your initial posting that is not your textbook. Please do not use Investopedia or Wikipedia.

Answer 1

Q.Evaluate the environmental factors that contribute to corporate management’s need to manage corporate earnings to align with market expectations, indicating the potential long- term risks to financial performance and sustainability?

A. Running a business is a difficult task and every business has a social responsibility as well as an economic mission. Nowadays, corporate social responsibility has emerged as a top management concern for the business houses. It is also on the agenda of governments, both national and local, as well as non-government organizations, consumer groups, investors, and other actors in civil society.

What observations can be made about the concept of social responsibility?

• There is no common definition. Each company responds in its own unique way, depending upon its core competencies and stake-holders interests. Country and cultural traditions also influence how companies respond.
• Social responsibility is fundamentally a philosophy or a vision about the relationship of business and society, one requiring leadership to implement and sustain it over time. It is most effectively treated as an investment, not a cost, much like quality management. It is a process of continuous improvement, not a fad, which begins small and grows and expands over time. It has been referred to as "caring capitalism" in contrast to "financial capitalism" or "cowboy capitalism" and other more aggressive forms of free enterprise.
• It is inextricably linked to profitability, as there can be no social responsibility without profits. Profits are essential not only to reward investors but also to provide sustainable jobs, pay fair wages, pay taxes, develop new products, invest in services, and contribute to the prosperity of the communities in which business operates.

Q. Assess the ethical complexities related to managing corporate earnings, determining whether or not investors and stakeholders are accepting of this behavior. Assuming that you are in a position to make corporate financial decisions, how likely are you to engage in earnings management and why?

A.Most business leaders would agree that they are managing in times of turbulence and accelerating change. They would also find a consensus about most of the trends and forces which are challenging their traditional views of competitiveness and of the success factors for survival and profitability. These forces include the following:

• Globalisation of markets, consumer preferences, supply chains and financial flows. Some business leaders consider globalisation to be a revolution, not simply a trend, since it is having momentuous effects on the economies of all countries and on corporations in most sectors.
• Increasing intensity of competition. Peter Veill used the expression "managing in white water" to express the challenge of meeting the turbulence and instability which global competition has created. There are few signs of ever returning to the comfortable 1970's.
• Rapid technological changes are transforming markets, alleviating burdensome tasks, enabling greater customisation of production, and contributing to high labour displacement. Modern information technology makes it possible to decentralize decision-making without losing 'control' and to introduce more flexible and less hierarchical structures.
• A shift from an industrial economy to a knowledge and information - based economy. Human capital is replacing financial capital as the most important strategic resource. Traditional concepts of work, of jobs, and of motivation are being challenged.
• Demographic changes not only threaten the sustainability of our planet but create a mismatch between jobs and suitably-trained workers, and between present educational systems and the needs of a knowledge and information-based economy.
• Environmental challenges caused by pollution and resource depletion test the sustainability of our planet earth. Business leaders are called upon to play an important role in meeting these challenges.
• Changing value systems are finding expression in different life styles and expectations on the part of employees, customers, and communities as a whole. Tomorrow's Company referred to this phenomenon as the "death of difference."

Environmental and social criteria are increasingly influencing the investment decisions of individuals and institutions both as consumers and as investors. These external pressures can be expected to exercise an increasing influence as better information on corporate performance becomes available. There is also increasing recognition of the importance of partnerships and of the 'civic economy' in addressing many societal problems. Private enterprise is beginning to reach out to other members of civil society such as non-governmental organisations, the United Nations, local governments, and foundations, in forming partnerships which are better suited to meet the interests of different stakeholders and the community as a whole in an increasingly complex global economy.